History > 2009 > UK > Economy (I)

Gerald Scarfe

Sunday Times

January 25 2009

http://www.timesonline.co.uk/tol/comment/article5577804.ece

Bottom: Prime Minister Gordon Brown

UK recession is worse than forecast

March 27, 2009
From Times Online
Carl Mortished

A sudden collapse in the building sector caused the British economy to fall into an even steeper decline in the final quarter of last year, according to revised government figures published today.

New data showed a shrinkage of 1.6 per cent in gross domestic product (GDP) during the final three months of 2008 compared with earlier estimates of a 1.5 per cent decline.

The fall in GDP is the sharpest quarter-on-quarter decline since 1980.

On an annual basis, GDP fell by 2 per cent, more than the 1.9 per cent previously estimated, and the steepest year-on-year fall since 1991 - the last time Britain was in recession.

The sharpest decline was in the construction sector, which has been dogged by the slump in demand for new houses.

Output in construction plunged by 4.9 per cent during the final quarter compared with an earlier estimate of 1.1 per cent, while the slowdown in manufacturing accelerated to 4.5 per cent compared with the 1.8 per cent fall in the previous quarter.

Meanwhile, household spending came under the cosh from strained budgets but the state enlarged its share of the economy, spending more as households reined in.

Consumer expenditure was down 1 per cent during the period but government expenditure rose by 1.3 per cent and at the end of last year was 4.4 per cent higher than the same period in 2007.

In January, figures confirmed that the UK was officially in recession after the ONS data revealed that GDP had shrunk during two consecutive quarters - the technical definition of a recession.

Last week, the International Monetary Policy (IMF) stamped out hopes the UK economy would begin to see some recovery by Christmas with predictions that the recession will continue into 2010.

The IMF forecasts that UK GDP will plunge by 3.8 per cent in 2009, far worse that initial expectations of a 2.8 per cent contraction and will shrink by a further 0.2 per cent next year.

The forecast contrasts with Spencer Dale, chief economist at the Bank of England, who said today that "economic conditions may start to improve later this year" when the "substantial" stimulus begins to take effect.

Howard Archer, chief UK and European economist at IHS Global Insight, said consumer spending will come under more pressure from rising unemployment, which is running at 2.03 million and is expected to hit 3.3 million by the end of 2010, as well as reduced income growth.

Earlier this week, the Retail Price Index measure of inflation, which is used as a benchmark for wage deals by employers across the country, fell to 0 per cent and is widely expected to fall into negative territory this year.

He added: "Business investment is being slashed in the face of sharply weakened final demand, rising levels of spare capacity, worsening cash flows and very tight credit conditions, deteriorating profitability, and serious concerns and uncertainties about the potential length and depth of the recession."

UK recession is worse than forecast, Ts, 27.3.2009,
http://business.timesonline.co.uk/tol/business/economics/article5985498.ece

Welcome

to the inescapable era of no money

For the next ten years British politics
is going to be about living
with the consequences of the State being flat broke
 

March 11, 2009
From The Times
Daniel Finkelstein

We are insolvent. Out of money. Financially embarrassed. Strapped. Cleaned out. We are skint, borassic lint, Larry Flynt, lamb and mint. We are lamentably low on loot. We are maxed out. We are indebted, encumbered, in hock, in the hole. We are broke, hearts of oak, coals and coke. It doesn't matter whether money can buy us love, because we haven't got any.

Welcome to the era of no money. The central fact of British politics in the next ten years, and perhaps longer, is not hard to spot. British politics isn't going to be dominated by interesting debates on the future of capitalism. It isn't going to be the stage for a revival of interest in democratic socialism. It isn't going to play host to the interplay of competing ambitious projects. No. We're in for a hard slog. Because what British politics is going to be about in the next ten years is living with the consequences of the State being broke, of the Government running out of money.

I don't mean to make a meal of this. It's just that sometimes when I listen to the political debate, I wonder if everyone is still connected with reality. They're all busy announcing new schemes and White Papers or dreaming of tax cuts and so forth, and no one seems to talk much about the cash. La la la la (fingers in ears). The Conservatives occasionally bring it up, a little gingerly. They think the problem is going to land on their plate, after all. But they are also worried about being seen as gloomy, so they try not to bang on about it.

Let's look at a few figures. In January the Institute for Fiscal Studies published its 2009 Green Budget. Having described the incredibly painful cuts in projected public spending that have already been announced, the IFS says: “If the public finances evolve as the Treasury hopes, this tightening would have to remain in place until the early 2030s before debt returns below the ceiling of 40 per cent of national income Gordon Brown set as one of his two fiscal rules in 1997.”

Only one thing: the IFS - like most informed observers - does not think the public finances will evolve as the Treasury hopes. Things will be far worse. The Government or its successor will need a further £20billion a year. A further £20billion of tax rises or spending cuts on top of its already very difficult, tough plans. And, adds the IFS, “even if it acts, public sector debt may well not return to pre-crisis levels for more than 20 years”.

Twenty years is a political age. Twenty years ago Tony Blair was Shadow Secretary of State for Energy and George Osborne was studying for his A levels. The era of no money will define politics long into the distance, as far as the eye can see.

If you want to understand what this will mean for the Left then consult the books of the Labour thinker, Tony Crosland. On this point they bear rereading even if some of them are more than 50 years old. Crosland insisted that the future of socialism depended on being able to raise the level of economic growth and state spending. Without growth Labour would not be able to redistribute, or at least it would face a titanic struggle trying to do so. As it pursued equality it would be fiercely resisted by an army of losers.

This has not been a merely theoretical point. Every Labour government has kept its unstable coalition of leftist dreamers, truculent union men and hard-nosed managerialists together by spending money. Money is how the NHS was created as Nye Bevan bought off the doctors and, more than 50 years later, money was how Mr Blair kept his Government afloat.

New Labour was made possible because steadily increasing state spending allowed important choices to be avoided. The Government could give out more in benefits to the low paid, spend cash on the NHS to cover up its failures, buy off the unions and all without alienating the middle class too badly. If it proposed market reforms, to burnish its credentials as a progressive party, it could buy off the left-wing critics with taxpayers' cash. No more. In the era of no money, the Left will have to choose. And choosing will be grim.

But things will be grim for the Right, too. Many Conservatives have lived in a dreamworld. Cutting spending would be easy. Cutting tax is a moral necessity. They are about to find out just how difficult it is even to control the amount Government pays out. Consumers of public services have rising expectations and most of the services are labour intensive. Both these things keep pushing up costs, even if government does nothing.

And Tory ideology robs them of the one escape route that the Left retains. They can't very well start putting up taxes - at least not greatly, at least not for an extended period. The party leadership is going to find it hard enough restraining the demand for tax cuts from activists and newspapers, tax cuts that the era of no money make impossible.

The Tories will aim, of course, to make services more efficient and to get government out of wasteful projects altogether. Yet even this will prove hard. Reform costs money. Making people redundant, moving offices, sending out circulars full of new instructions, keeping interest groups happy while making controversial changes - it all costs money. And (here's a point I may not have mentioned) there is no money.

It will not be open to David Cameron to be the mirror image of Mr Blair - to move gently towards Tory goals while using spending to keep his opponents always, always slightly off balance. In the era of no money a much more bloody clash will prove almost impossible to avoid. The Left will not find themselves, as the Right did in 1997, confused and with little to say. The battle with the Tories over tax and public spending will seem familiar. Then again, they might like to recall that when those were the battlelines, they lost.

    Welcome to the inescapable era of no money, Ts, 11.3.2009, http://www.timesonline.co.uk/tol/comment/columnists/daniel_finkelstein/article5883988.ece

RBS record losses

raise prospect of 95% state ownership

• Bank makes loss of £24bn
• Taxpayer could end up owning 95%
• Row over £650,000 pension for failed boss Goodwin

Thursday 26 February 2009
08.57 GMT
Guardian.co.uk
Jill Treanor
This article was first published on guardian.co.uk
at 08.57 GMT on Thursday 26 February 2009.
It was last updated at 09.14 GMT
on Thursday 26 February 2009.

Royal Bank of Scotland has suffered the biggest loss in British corporate history - more than £24bn - and admitted today the taxpayer could end up owning 95% of the bank if its losses continue to mount.


The troubled bank needs to sell up to £19.5bn new B shares to the taxpayer in order to insure £300bn of its most troublesome assets. As a result, the taxpayer's voting rights over the bank would increase to 75% from almost 70% now. But Stephen Hester, the new chief executive, said the government's "economic interest" could rise to 95% "depending on how things work out".


On a conference call with reporters this morning, Hester said he "wanted to be honest and clear" on the government's stake because "we live in an uncertain world". But the voting influence of the taxpayer would be restricted to 75%, he said.


The scale of the losses suffered by the bank exacerbated the row about a £650,000 pension being drawn by former chief executive Sir Fred Goodwin, who is 50 and left last month after almost a decade at the helm.


Treasury minister Stephen Timms said the current RBS board was "extremely concerned" by the pension deal, which threatens to undermine government claims that it would not reward failure.


Hester said today the payments were part of the contractual entitlement to Goodwin and were agreed by the government at the time of the initial October bail-out.


The figures from RBS showed a statutory loss of £40bn, which falls to £24.1bn if technical issues relating to the bank's acquisition of ABN Amro are ignored. It largely comprises £7.8bn of trading losses and £16.8bn of writedowns caused by paying too much for acquisitions, notably ABN.


The City had been braced for £20bn of writedowns so the overall loss is slightly lower than expected.


But Derek Simpson, joint leader of Unite, said: "These historic and humiliating losses bring into sharp focus just how recklessly RBS's former management team have behaved.

"The whole country is paying the price through job cuts and repossessions on a massive scale. It is time to take control and fully nationalise this bank.

"You cannot have a state bail-out on one hand while allowing the spectre of thousands of job losses to loom over staff on the other," he said.


Hester today set out the detail of the radical restructuring he intends to undertake to try to set RBS back on a course to recovery. He outlined seven goals and which involve the bank shrinking by 20% and did not dispute speculation that up to 20,000 jobs from a 177,000 workforce could be axed.

• Shift £240bn of assets to a non-core division for disposal/run down over three to five years

• Deliver substantive change in all core division businesses

• Centre on UK with smaller, more focused global operations

• Radically restructure global banking and markets, taking out 45% of capital employed

• Cut more than £2.5bn out of the group's cost base

• Have access to the government asset protection scheme

• Drive major changes to management, processes and culture


Hester said: "Our aspiration is that RBS should again become one of the world's premier financial institutions, anchored in the UK but serving individual and institutional customers here and globally, and doing it well".

The bank's offices in 36 of the 54 countries in which it operates around the world will be cut back or sold. But major "global hubs" will remain.

New chairman Sir Philip Hampton made a fresh apology to shareholders. Last year their shares were trading at 400p. In early trading today they were 28.1p. Hampton said: "An inevitable but regrettable consequence of the successive capital raising exercises has been the dilution of the interests of existing shareholders. My predecessor Sir Tom McKillop apologised to shareholders for the impact on them of the erosion of their investments, a sentiment I echo. Those of us now charged with leading the group are committed to implementing measures which will allow us to restore the group to standalone financial health in the interests of all shareholders."

The bank also took a £7bn charge to cover impairment of loans that have turned sour.

Executives had spent much of the night locked in talks about the asset protect scheme to insure £300m of its most troublesome assets. In turn the bank will issue £13bn of a new class of B shares and a further £6.5bn at a later date to pay for the scheme which forces the taxpayer to take on additional risk. In return, RBS will lend a further £25bn this year and a further £25bn next year to try to kick start the economy. The fee will be spread over seven years in the bank's accounts.

Hester confirmed Nathan Bostock had been hired from Abbey National to run the assets which will be disposed of or shut down. Gordon Pell, a long-standing board member, is also delaying his retirement and being appointed deputy chief executive.

    RBS record losses raise prospect of 95% state ownership, G, 26.2.2009, http://www.guardian.co.uk/business/2009/feb/26/rbs-record-loss

UK car production falls 58.7pc

UK car production fell 58.7pc in January,
confirming the dramatic decline in the country's motor industry.

Last Updated: 12:02PM GMT 20 Feb 2009
The Daily Telegraph
By Graham Ruddick

The steep decline comes as car makers including Ford, Honda, Toyota, Nissan, BMW's Mini and Jaguar Land Rover cut production and jobs.

The data from the Society of Motor Manufacturers and Traders (SMMT) marks a further decline from December, when production fell by 47.5pc compared to a year earlier.

Paul Everitt, the SMMT chief executive, said the rapid decline highlights the "critical" need for further Government measures to support the sector.

Worldwide sales of new cars have plunged amid a lack of available finance and confidence among consumers. In response, auto companies have been forced into drastic restructurings and asking for state aid.

Lord Mandelson, the Business Secretary, has made £2.3bn of emergency loans available for car makers in the UK. But Mr Everitt believes incentive schemes to encourage motorists to replace their old cars are required, along with measures to boost car dealers' liquidity so they can afford to purchase vehicles.

"The extent of the decline highlights the critical need for further government action to deliver the measures already announced and ease access to finance and credit,” he said.

"European markets have been lifted by scrappage incentive schemes and SMMT continues its call for a UK plan to boost the new vehicle market and support employment throughout the sector. The motor industry reiterates its request for an urgent government response.”

The figures, which also show a 59.9pc fall in the production of commercial vehicles, cap a pitiful week for the industry. On Monday, 850 jobs were cut at BMW's Mini factory near Oxford, prompting employees to pelt management with fruit. The following day GKN, which makes car parts, axed 564 jobs "entirely due to the dramatic and sustained reduction in customer orders".

In the US, General Motors and Chrysler have told the government they require $16.6bn (£11.7bn) of financial support.

The car makers plan to axe 47,000 jobs worldwide – including 26,000 outside of Europe. GM Europe is also looking to offload Swedish auto-maker Saab and potentially sell stakes in the Opel and Vauxhall brands.

The UK Government said it was "considering" GM's plans – which include a request for $6bn of support from governments outside the US.

    UK car production falls 58.7pc, DTel, 20.2.2009, http://www.telegraph.co.uk/finance/financetopics/recession/4732308/UK-car-production-falls-58.7pc.html

Home repossessions jump 54%

as mortgage arrears soar

February 20, 2009
From Times Online
Grainne Gilmore

The number of people losing their homes rose by 54 per cent last year, while the number of homeowners in arrears soared by 70 per cent, figures show.

Lenders repossessed some 40,000 homes last year, fewer than the 45,000 than had been forecast, the Council of Mortgage Lenders said. But some 219,000 people were three or more months behind with their mortgage payments at the end of the year, up from 127,500 at the end of 2007.

The CML has forecast that 500,000 people could fall behind with three or more mortgage payments this year.

The CML said that the lower repossession figures indicated that lenders were making "strenuous efforts" to try to keep people in their homes.

Seperate figures from the Ministry of Justice, also published this morning, show that the number of mortgage possession claims lodged by lenders dropped by 32 per cent in the final three months of last year compared to the same period in 2007.

However the number of possession orders passed by judges rose by 14 per cent year on year, with 29.095 orders granted. Not all orders result in people losing their homes hoewever, as borrowers can still strike an agreement with lenders even after the order has been granted.

The Government this morning revealed new details of its Homeowner support scheme, which is aimed at cutting the number of repossessions.

Margaret Beckett, the Housing Minister said: “We are determined to do everything possible to ensure repossession is always a last resort, and are taking action to give real help now to households most in need.

“Our mortgage rescue scheme is up and running, more free legal and debt support is available than ever before, and we have increased financial assistance to help people pay their mortgage if they’ve lost their job.

Michael Coogan, the director general of the CML, said that there was a rise in the numbers of borrowers handing back their keys or abandoning their properties.

"We strongly urge borrowers to contact their lender and work with them before taking this step, as there may be other solutions. Borrowers are still liable for their debt, even if they leave the property, so working through their problems is much more likely to be in their best interests," Mr Coogan said.

    Home repossessions jump 54% as mortgage arrears soar, Ts, 20.2.2009, http://business.timesonline.co.uk/tol/business/economics/article5771541.ece

Lloyds warns of £10bn HBOS loss

Published: February 13 2009 14:15
Last updated: February 13 2009 15:14
The Financial Times
By John O’Doherty and Bryce Elder

Lloyds Banking Group warned on Friday that its HBOS subsidiary would report a pre-tax loss of £10bn for the full year, hit by £7bn of impairments in its corporate division.

The figure is significantly above estimates made by analysts such as those at Credit Suisse, which anticipated a £4.8bn loss from the bank.

The news hit London banking stocks hard. Lloyds shares dived more than 40 per cent before recovering slightly to trade 28.5 per cent lower at 65p. Barclays sank 15 per cent before rallying to stand 3.8 per cent lower at 101p and Royal Bank of Scotland was 5 per cent lower at 22.8p, having earlier hit a session low of 19.8p, down 17.5 per cent.

Banking sector stocks had rallied from record lows last month after comments from government officials helped ease fears of nationalisation. However, it remains the worst performing industry group for the year to date, with the FTSE 350 Banks Index slumping 25 per cent.

Lloyds’ warning also hit sterling, which was trading off session highs against the dollar in response.

The group, formed by the government-sponsored merger of Lloyds-TSB and HBOS last year, said that pre-tax profits at the standalone Lloyds banking division (as it existed before the merger) would be in the region of £1.3bn, roughly in line with what analysts had been expecting.

However, in the past two months HBOS had been affected by “increasingly difficult market conditions, an acceleration in the deterioration of credit quality and falls in estimated asset values”.

It said the impairments were some £1.6bn higher than it had expected when it unveiled the merger last November.

The losses were mainly driven by a £4bn hit from “market dislocation” and approximately £7bn of impairments in HBOS’s corporate division. As a result, Lloyds said that underlying pre-tax losses at HBOS would be £8.5bn, which when combined with impairments and ancillary losses would total £10bn. There will be an additional £900m tax charge on top of this.

Eric Daniels, chief executive, said in a statement: ”HBOS’s 2008 results have been adversely affected by the impact of market dislocation, which accelerated significantly in the last quarter of 2008, and the additional impairments required on the HBOS corporate lending portfolios. These impairments primarily reflect the application of a more conservative recognition of risk and the further deterioration in the economic environment.”

Lloyds said its core tier 1 capital ratio at the end of the year was in the range of between 6-6.5 per cent, in excess of its regulatory capital requirements.

    Lloyds warns of £10bn HBOS loss, FT, 13.2.2009, http://www.ft.com/cms/s/0/eefff408-f9d6-11dd-9daa-000077b07658.html

Sterling extends losses

as BofE cuts growth forecast

Published: February 11 2009
11:14
Last updated: February 11 2009
11:14
Thez Fiancial Times
By Peter Garnham

The pound extended its losses on Wednesday as the Bank of England signalled it was prepared to take unconventional steps to boost the UK economy.

Mervyn King, the Bank’s governor, said the UK economy was in deep recession and that the risks to economic growth lay “heavily to the downside” as the government wrestled with problems in the UK financial system.

In its quarterly Inflation Report, the Bank cut its growth forecasts sharply and predicted UK inflation would fall well below its 2 per cent target if interest rates remained at their current level.

This heightened expectations that the Bank would deliver a further cut in UK interest rates after lowering them by 50 basis points to 1 per cent after its monetary policy committee meeting last month.

But it was comments that the Bank would embark on a policy of quantitative monetary easing once interest rates fell to zero that undermined sterling.

Mr King said the central bank would ‘certainly’ be buying Gilts and the supply of money needed to be increased.

“In other words, Mr King is talking about turning on the printing press, which would effectively de-base the value of the pound,” said Paul Mackel at HSBC.

“On the back of Mr King’s comments the path of least resistance is for sterling to weaken.”

The pound fell 1 per cent to $1.4385 against the dollar, lost 1.2 per cent to £0.8987 against the euro and fell 1.6 per cent to Y129.36 against the yen.

Meanwhile, the dollar and the yen remained supported on Wednesday after sharp gains in the previous session.

Both currencies rallied strongly on Tuesday as disappointment following the US government’s bank rescue plan boosted safe haven demand for the dollar and yen.

The turnaround in sentiment stemmed the recent rebound in higher-risk currencies, with the pound one of the main underperformers reflecting the exposure of the UK economy to the financial sector.

Analysts said the market expected to see clear and decisive guidance from the new US administration, but were disappointed by the lack of detail concerning the pricing of distressed assets, the epicentre of the financial system’s problems.

“The market, correctly, doesn’t much care about tax rebates and public spending, as it understands these well and generally deems it a sideshow compared to the enormity and confusion surrounding bank balance sheets and lending confidence,” said Maurice Pomery at IDEAGlobal.

“The statement failed to deliver.”

The yen rose 0.7 per cent to Y89.87 against the dollar, climbed 0.5 per cent to Y116.37 against the euro and gained 0.9 per cent to Y58.71 against the Australian dollar.

The dollar eased 0.2 per cent to $1.2945 against the euro and edged 0.2 per cent lower to SFr1.1534 against the Swiss franc.

Meanwhile, the Swedish krona dropped sharply after the Riksbank, the country’s central bank, cut interest rates by more than expected after its policy meeting.

The bank slashed rates by 100 basis points to a record low of 1 per cent and said it might have to cut rates further. Analysts had been predicting a 50 basis-point move.

The Swedish krona fell 1.5 per cent to SKr8.3640 against the dollar and dropped 1.8 per cent to SKr10.8350 against the euro.

Audrey Childe-Freeman at Brown Brothers Harriman said the fact that Sweden’s yield advantage was falling by the month and had almost disappeared would weigh on the krona in the short term.

However, she said over a longer-term perspective, the pro-active fiscal and monetary policy mix endorsed by the Swedish authorities may be rewarded.

“Clearly that is not today’s story, but it is worth bearing in mind,” said Ms Childe-Freeman.

    Sterling extends losses as BofE cuts growth forecast, FT, 11.2.2009, http://www.ft.com/cms/s/0/9aacf07e-f82b-11dd-aae8-000077b07658.html

Unemployment hits 12-year high of 1.97m

February 11, 2009
From Times Online
Grainne Gilmore

Unemployment rose by 146,000 to 1.97 million between October and December, the highest level of unemployment since August 1997, after Labour came to power.

Today's figure is lower than City economists had forecast, who had been expecting unemployment to reach two million in the final three months of the year.

However, the number of redundancies in the three months to December 2008 was 259,000, the highest figure since comparable records began in 1995.

Last month, the number of people claiming jobseeker’s allowance rose to a ten-year high, rising by 73,800 to 1.23 million.

Some 438,100 more people signed up for benefits last year.

City economists expect the jobless figures to deteriorate again in the coming months.

Vicky Redwood, of Capital Economics, said: "Much worse is to come — these figures won’t even fully reflect the effects of Q4’s sharp contraction in the economy.

"We still think unemployment will reach 3.5 million by the end of 2010."

Paul Kenny, general secretary of the GMB union, said: “What a bleak day for our economy and for the workers and families of those now jobless.

“All across the world workers are losing their jobs daily at a very fast rate in this bankers’ recession."

Unemployment rose fastest in the West Midlands in the final three months of the year, increasing by 1.2 per cent compared to the previous quarter. In contrast, unemployment fell by 0.1 per cent in London, and 0.2 per cent in Yorkshire and the Humber.

The new figures emerged as Gordon Brown hosted a meeting with business leaders in an attempt to publicise efforts to expand the number of posts offered at Jobcentres.

Executives from Sainsbury's, Royal Mail, Whitbread, Centrica, National Express and Travelodge all attended the first meeting of the National Employment Partnership in Downing Street this morning.

Mr Brown said: “Around this table are some of the biggest employers in the country. I realise these are very difficult times because of the global financial recession.

“But I am sure, by working together in partnership, we can make a difference to the employment opportunities and success of the economy.”

Mr Brown emphasised that despite growing unemployment, there were still 500,000 vacancies in the economy.

    Unemployment hits 12-year high of 1.97m, Ts, 11.2.2009, http://business.timesonline.co.uk/tol/business/economics/article5707365.ece

Leading article:

Britain's bankers

still have tough questions to answer
 

The job of the Treasury Select Committee is only half complete

Wednesday, 11 February 2009
The Independent

The grand Parliamentary inquisition of four of Britain's most prominent failed bankers yesterday might not have delivered the merciless evisceration many in the country had been hoping for, but it at least succeeded in getting Sir Fred Goodwin, Sir Tom McKillop, Andy Hornby and Lord Stevenson to offer a public account of themselves.

The apology that the former heads of the Royal Bank of Scotland and the Halifax Bank of Scotland delivered at the outset of the hearing was a study in ambiguity. The bankers were sorry for "the turn of events" and for "all the distress" caused, but not, it seems, for their own conduct. Their real failure, they argued, was one of omission rather than commission: they failed to anticipate that the flow of credit in the world financial system would come to an abrupt stop.

The Treasury Select Committee, to its credit, did not let them get away with that generous interpretation of their failings. MPs on these committees often adopt a scatter-gun approach to the interrogation procedure of witnesses. This time they were well briefed and reasonably well co-ordinated. And it became apparent over the course of the hearing that this quartet of bankers simply lost control of their businesses.

The admission extracted from Mr Hornby that "the bonus system has proved to be wrong" provides an important contribution to the present public debate about bankers' remuneration. It is much harder to justify such payments if the head of a failed bank believes they were a factor in his institution's downfall.

Yet an even bigger test for MPs on the Treasury Committee will come today when John Varley, the chief executive of Barclays, and Stephen Hester, brought in to manage the stricken RBS, come before them. For all the attention the inquisition of Sir Fred and Mr Hornby attracted, they are essentially yesterday's men. Those in the hot seat today are still players.

Mr Varley, in particular, needs to answer some tough questions, both about the manner in which he has run his bank in recent years and about how he intends to run it going forward. The committee needs to find out why Barclays chose to eschew the Government capital on offer last October, preferring instead to raise more expensive funding from the Middle East. There is a widespread belief in the financial world that the motivation was to avoid any Government interference in the bank's remuneration practices.

There is also some scepticism in the City over Barclays' methods of valuing its assets. Can Mr Varley guarantee that there will be no nasty surprises in store for shareholders? There is a clear public interest in getting an answer to this. If Barclays' attempt to go without state support does end in disaster, the Government would have to clean up the mess. Barclays is, in that dreaded phrase, "too big to fail".

Mr Hester cannot be called to account for the woeful past performance of RBS. But there is a good deal to ask him about the bank's future, not least the question of whether he is running the bank primarily in the interests of its remaining private shareholders, or the taxpayer, which now owns a majority of the business?

MPs must also demand an explanation from both men of why they are still planning to pay their staff bonuses despite the fact that the share price of their respective institutions has collapsed. The Treasury committee made a decent start yesterday. But this inquisition is far from over.

    Leading article: Britain's bankers still have tough questions to answer, I, 11.2.2009, http://www.independent.co.uk/opinion/leading-articles/leading-article-britains-bankers-still-have-tough-questions-to-answer-1606269.html

Dave Brown

The Independent

10 February 2009

http://www.independent.co.uk/opinion/the-daily-cartoon-760940.html

Prime Minister Gordon Brown

Bankers on trial

Mark Steel:

New Labour encouraged

every aspect of this avarice

The people who couldn't see
what was obvious are allowed to carry on


Wednesday, 11 February 2009
The Independent
 

The real point about a minister saying this is the worst economic crisis for 100 years, is it shows they haven't got a clue. That figure was plucked out of nowhere, unless there was a really dreadful crisis in 1909 that no one ever noticed before. Maybe the minister's just seen Mary Poppins, and the scene where the bank goes bust, he thinks is footage of a real financial crash.

So his next statement to Parliament will be "In order to steady the financial markets we are proposing tuppence tuppence tuppence a bag, feed the birds, tuppence a bag. THAT is the sound economic sense that can rescue our banks, rather than the ill-thought-out soundbites from the party opposite."

Why not say it's the worst for 2,000 years, when the great crash of 9AD was caused by the gross overvaluation of aqueducts? Or the worst for 65 million years, when the Jurassic currency disaster led to bankers throwing themselves from the top of brontosaureses, followed by the eventual disappearance of all dinosaurs, despite the Prime Minister having boasted: "We have finally put an end to the cycle of evolution and extinction."

Next week a minister will announce that the Bank of England has revised its forecasts, and instead of the crisis getting as bad as diarrhoea, as it first thought, it now expects it could be as bad as gastroenteritis, and the IMF believe it could even reach the point where it's like one of those days when it's coming out of both ends at once. But with careful fiscal handling this should be easing by the last quarter of 2010.

You have to admire the front of these ministers for saying anything at all about what's happening, given they insisted for years there would never ever again ever be a cycle of boom and bust.

Similarly an army of experts assured us on a daily basis that this boom couldn't possibly crash like previous booms because this boom was still going on whereas all previous ones had ended, and previous booms were founded on a manic belief that wealth could go up and up without any basis in reality, whereas this one was built on the sound footing that everything really is somehow suddenly worth twice as much so TAKE AS MUCH AS YOU CAN RIGHT NOW IT CAN'T EVER STOP!!!

For example, one of the bankers questioned yesterday said it was "not possible to envisage" the banking crash. But in every office, every pub, every launderette, there were people who managed to envisage exactly that. If Gordon Brown had got them to write his chancellor's speech, so that it went: "The bubble's got to burst sometime. I mean, you can't base an economy on pretending everything's doubled in value, and who's going to pay for these bankers' bonuses – WE are, that's who. I commend this budget to the House," he might not be in his present trouble.

Instead the people who couldn't possibly envisage what was obvious are allowed to carry on. To be fair, ministers have expressed their annoyance at the bankers' bonus system, so presumably there will now be a series of adverts in which a furtive banker buys a boat, while the camera zooms in to his sweaty face and a voice says: "Banking cheats – we're closing in."

One answer may be a review of how this bonus system came about. As if the Government's making out it's only just heard about it and they're as outraged as everyone else. Maybe Brown will make a statement to the nation in which he says: "HOW much do they pay themselves? Well no WONDER we're in a pickle, you just wait 'til I get my hands on them."

But New Labour urged and encouraged every aspect of this corporate avarice. It was defined from the beginning by characters like Mandelson making speeches such as: "In the modern Labour Party we are relaxed about those who express an insatiable and pathological desire for self-enrichment at the expense of our fellow man that borders on the truly evil."

They grovelled to every banker, and now they want to set up a review to see how that happened. If only Karen Matthews had thought about it, she could have said: "Instead of going to jail, why don't I set up a review to see how I kidnapped my own daughter," and got herself six months' work.

    Mark Steel: New Labour encouraged every aspect of this avarice, I, 11.2.2009, http://www.independent.co.uk/opinion/commentators/mark-steel/mark-steel-new-labour-encouraged-every-aspect-of-this-avarice-1606275.html

Bankers apologise

and back calls for review of bonus culture

Former bosses of RBS and HBOS
apologise to the Treasury select committee
for the events that led up to their banks
being taken largely into public ownership

Tuesday 10 February 2009
15.26 GMT
Guardian.co.uk
Andrew Sparrow and agencies
This article was first published on guardian.co.uk
at 15.26 GMT on Tuesday 10 February 2009.
It was last updated
at 15.27 GMT on Tuesday 10 February 2009.

Senior bankers today backed calls for a review of the City bonus culture as they apologised to MPs for their role in events leading up to RBS and HBOS having to be rescued from the verge of collapse.

Sir Fred Goodwin and Sir Tom McKillop, respectively the former chief executive and chairman of RBS, and Andy Hornby and Lord Stevenson, respectively the former chief executive and chairman of HBOS, were quizzed about bonuses during a Commons Treasury select committee hearing in which they were accused of being "in denial" about their role in the banking crisis.

Although all four started their evidence by apologising, at times they faced hostile questioning and after the hearing was over the committee chairman, John McFall, accused them of displaying "a hint of arrogance".

During the session, which lasted for more than three hours, the four admitted that they did not anticipate the events that led to RBS and HBOS having to be rescued, but they insisted that others had also failed to anticipate global credit drying up in the way that it did. The hearing also featured:

• Goodwin and McKillop conceding that RBS's decision to buy the Dutch bank ABN Amro was a mistake

• All four witnesses admitting that they did not have formal banking qualifications

• Hornby admitting that he was being paid £60,000 a month to work as a consultant for his old bank

• John Mann, a Labour MP, asking Goodwin if he had a "different moral compass" from other people, and Jim Cousins, another Labour MP, asking McKillop if he had taken legal advice on the nature of criminal negligence. Goodwin said there was no reason for Mann to question his integrity and McKillop said he had not asked for such advice

• Michael Fallon, a Tory MP, accusing Goodwin of "destroying a great British bank"

• McKillop admitting he did not fully understand some of the complex financial instruments his bank was using

• McFall telling the bankers that the RBS board contained "the brightest and the best" and suggesting the complexity of modern banking, not individual incompetence, was to blame for what went wrong.

At the start of the session Goodwin, who in the past has been criticised for not showing sufficient regret for his role in what happened to RBS, said he was offering "profound and unqualified apologies for all the distress that has been caused". He said that he was repeating an apology he had already given to shareholders.

Stevenson, McKillop and Hornby also repeated apologies that they said they had made in the past.


RBS is now 68% owned by the state and has been propped up with £20bn of public money.

HBOS has been entirely swallowed by Lloyds TSB in the newly formed Lloyds Banking Group after the lender fell victim to the financial crisis.

RBS, HBOS and merger partner Lloyds were supported with £37m in taxpayers' cash last autumn as the financial system came close to collapse.

On bonuses, three of the bankers agreed that the City's bonus system needed to be reviewed.

McKillop said: "I believe that the events that have occurred and the situation we are now in should give us an opportunity to look fundamentally at the remuneration practices going forward. But I do believe that it needs to happen across the board."

Goodwin said that the bonus system was "something that should be looked at", but he said he did not accept that the bonus culture had encouraged illegitimate risk-taking at RBS.

Hornby said he thought bonuses should be tied to long-term performance, and that instead of being paid annually, they should be paid over three to five years.

"There is no doubt that the bonus system in many banks around the world has proven to be wrong in the last 24 months," Hornby told MPs, "in that, if people are rewarded [in] purely short-term cash form and are paid very substantial short-term cash bonuses without it being clear whether these decisions over the next three to five years have proven to be correct, that is not rewarding the right type of behaviour."

Goodwin and McKillop were also asked about RBS's decision to buy the Dutch bank ABN Amro, which led to RBS having to write off £20bn. Michael Fallon told McKillop: "You have destroyed a great British bank. You have cost the taxpayer £20bn."

McKillop said: "The deal was a bad mistake. At the time it did not look like that ... There was widespread support for it."

The bankers came under a particularly fierce grilling from John Mann, a Labour member of the committee.

Addressing Goodwin, Mann asked him whether he had a "different moral compass" from other people. He also asked him if his integrity and ethics were representative of the banking profession as a whole.

Goodwin replied: "Reflecting on everything that has happened, I think there is a case for questioning some of the [decisions] that I have made. I'm not aware of any basis for questioning my integrity as a result of it all."

Referring to HBOS, Mann said that he had had letters from HBOS employees saying they were "ashamed" to work for the bank. He asked Hornby to confirm that he was now working for Lloyds TSB, the bank that subsequently took over HBOS, as a consultant on a salary of £60,000 a month.

Mann said Hornby's salary would pay the wages of 36 low-paid bank staff. "Why is failure being rewarded? Why are you still getting this money?" he asked.

Hornby said he was being paid £60,000 a month, but that he had said that he only wanted the arrangement to continue for three months and that, if they still wanted him after that, he would work for free.

Hornby went on: "Can I please reiterate in terms of your impression about being rewarded for failure that I invested every single penny of my bonus in shares? I have lost considerably more money since I have been chief executive than I have earned."


George Mudie, a Labour member of the committee, told the four that, having listened to them, he had the impression that they were "all in bloody denial" about their role in what went wrong.

Stevenson denied that. "We are not in denial," he told Mudie.

"There are many things that we regret. I do think that in a number of areas it's a fact that very carefully arranged risk management systems were developed ... which regrettably did not spot scenarios coming up that have come up. Stress-testing did not stress-test adequately."


During the hearing, in a hint that the four bankers may escape severe personal criticism when the committee publishes its conclusions, McFall suggested that individual bankers were not to blame and that the problems were structural.

Addressing McKillop, McFall said the RBS board contained "the brightest and the best" and that as a result "there has to be something more fundamental there".

McFall said that experts had told the committee that they would have difficulty understanding the full scale of RBS's liabilities.

"Therefore you cannot lay the charge that it's incompetence. There has to be a system problem there. I put it to you that the expansion of new financial instruments increases the complexity to such an extent that people did not really understand them."

McKillop replied: "I agree with the thrust of your question."

At another point Sir Peter Viggers, a Tory MP, asked the witnesses if they understood the full complexities of the financial vehicles that their "clever young men" were creating.

McKillop replied: "You said 'full complexities'. I would say no."

After the hearing McFall told the World at One that he was glad the bankers had apologised but that he thought they had not showed full contrition.

"Was there a hint of arrogance still there? Absolutely," he said.

McFall also said the hearing had shown that the business model the bankers had been using had been "flawed".

    Bankers apologise and back calls for review of bonus culture, G, 10.2.2009, http://www.guardian.co.uk/business/2009/feb/10/bankers-apologise-rbs-hbos-treasury-committee

RBS, Morgan Stanley and UBS

to axe 6,500 jobs

Royal Bank of Scotland, Morgan Stanley and UBS
are cutting more than 6,500 jobs
in the latest blow to the ailing financial services industry.

10 Feb 2009
Last Updated: 6:45PM GMT
The Daily Telegraph
By Jonathan Sibun

RBS said it was in consultation with staff over plans to make 2,300 UK employees redundant. The cuts will affect about 2pc of UK staff.

Morgan Stanley kicked off its latest redundancy programme as part of a global restructuring that will see as many as 2,000 staff lose their jobs, hundreds of whom are likely to be UK based.

The majority of the RBS and Morgan Stanley redundancies are expected to come from back-office operations.

UBS said it would axe a further 2,200 jobs in its troubled investment bank. The Swiss institution expects staff numbers in the division to have shrunk to 15,000 by the end of this year, down from 26,000 in October 2007.

RBS, which claimed compulsory redundancies would be kept to a minimum, said the cuts would not affect customer-facing branch staff.

"It is essential that we consistently review our business to ensure that we are able to operate as efficiently as possible, especially in the current economic circumstances," said Alan Dickinson, chief executive of RBS UK.

"Staff have given everything they have over the last year, which makes the decision to cut any job an extremely tough one."

Banks have been forced to reduce headcount sharply as business has dried up and the global recession has intensified.

A Morgan Stanley spokesman said: "We are continually evaluating business conditions in an effort to be right-sized for the current environment."

The US bank has already made 8,680 – or about 6pc – of its global workforce redundant. RBS has cut about 3,950 jobs.

The redundancies come as Deutsche Bank became the latest investment bank to announce a sharp fall in bonuses. Staff were told the size of their bonuses yesterday with the average payout down 60pc year-on-year.

The job cuts are not confined to banks. City law firm Lovells has revealed plans to cut up to 94 staff, while call-centre operator Sitel said it was making 220 employees redundant.

Luxury carmaker Bentley said it is also cutting 220 jobs and revealed all staff will take a 10pc pay cut.

    RBS, Morgan Stanley and UBS to axe 6,500 jobs, DT, 10.2.2009, http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4582814/RBS-Morgan-Stanley-and-UBS-to-axe-6500-jobs.html

Personal bankruptcies hit new record

Friday 6 February 2009
10.41 GMT
Guardian.co.uk
Larry Elliott, economics editor
This article was first published on guardian.co.uk
at 10.41 GMT on Friday 6 February 2009.
It was last updated
at 10.48 GMT on Friday 6 February 2009.

Personal bankruptcy hit a record level and company failures soared by 50% as the collapse in the economy in the final three months of 2008 took its toll, official figures showed today.

Data from the Insolvency Service revealed that the steepest decline in output in almost 30 years led to 19,100 people being declared bankrupt - a 22% increase on the fourth quarter of 2007.

A further 10,000 people took out individual voluntary arrangements (IVAs) under which interest on debt is frozen in exchange for set repayments each month.

The total of 29,444 people being declared insolvent was up 18.5% on a year earlier and was higher than during the recession of the early 1990s.

The 1.5% contraction in the economy in the wake of the financial market mayhem last autumn also claimed 4,607 companies - a 52% increase in liquidations on the October to December period of 2007.

Economists warned that the level of bankruptcies was set to increase as unemployment rose and the problems caused by the credit crunch meant people were no longer able to borrow their way out of trouble.

Howard Archer, chief UK and European Economist at IHS Global Insight, said: "Unfortunately, the marked rise in the number of individual insolvencies in the fourth quarter of 2008 is a harbinger of what is very likely to be seen through 2009.

"Deep economic contraction, sharply rising unemployment, higher debt levels, lower equity prices, and more and more people being trapped in negative equity will exact an increasing toll over the coming months.

"While the substantial cuts in interest rates by the Bank of England will obviously help some people, they are likely to be insufficient to save many from insolvency."

Alan Tomlinson, partner at licensed insolvency practitioners Tomlinsons, said: "I have been an insolvency practitioner for over 25 years and have never seen so many companies, from all sectors, going to the wall. Trading conditions have never been so tough and given the bleak economic outlook it could be some time yet before they begin to improve.

"The appalling economic conditions are claiming more and more victims, as companies in all sectors make redundancies or simply fail.

"What is especially interesting is that more people have gone down the bankruptcy rather than the IVA route, which is a reflection of the fact that lenders have tightened up the criteria for the acceptance of IVAs."

The Insolvency Service figures also showed a 75% jump in the number of people declared insolvent in Scotland during the final quarter at 5,807, although the figure was slightly down on the total for the previous quarter.

In Northern Ireland insolvencies increased by 39% year-on-year to 443 during the three months to the end of December.

Nick O'Reilly, president of insolvency professionals' trade body R3, said: "What today's figures mean is that in 2008 we saw a staggering 350 people becoming insolvent in the UK every day. For 2009 our members believe this number will reach in excess of 430 people a day for the whole of the UK.

"The outlook is bleak for the next two years, when insolvency practitioners expect to see in excess of 158,000 personal insolvencies annually.

"We'll start to see the knock-on effects of increasing business failures and redundancies on personal financial situations."

    Personal bankruptcies hit new record, G, 6.2.2009, http://www.guardian.co.uk/business/2009/feb/06/bankruptcy-ivas-insolvencies

Britain 'headed'

for deepest slump in 60 years

As consumers cut their spending on a scale not seen for decades,
Britain will enter the gravest recession of the post-war era

February 4, 2009
From The Times
Gary Duncan, Economics Editor

The sharpest plunge in consumer spending since the Second World War will drive Britain this year into its deepest economic slump for 60 years, according to the country's leading economic research institute.

The headlong retreat from the high street by consumers is set to reach a scale not seen for generations, the National Institute of Economic and Social Research says in a bleak assessment of Britain's worsening prospects.

Consumer spending this year is set to plummet by 3.8 per cent - double the scale of a previous record annual drop, of 1.6 per cent, suffered in 1991, the institute forecasts.

The grim trend, already clear from the waning fortunes of troubled retailers, marks a sharp reversal after a decade in which consumer spending climbed at an average of almost 3.5 per cent a year.

The institute throws its weight behind a growing number of forecasts that Britain faces its gravest recession in the postwar era.

It expects the UK economy to shrink this year by 2.5 per cent and it concludes that the decline would be even steeper, at 2.7 per cent, but for the spillover into Britain from President Obama's planned $800billion (£558billion) stimulus measures in the United States.

The plunge in consumer spending predicted by the institute comes des-pite an expected resurgence in Britons' earnings growth, with real disposable incomes of households tipped to rise by 3.3 per cent this year, after an anaemic 1.5 per cent increase last year.

The boost to British competitiveness from a weak pound will offer a rare glimmer of hope, helping UK exports to rise by 2.4 per cent next year and pave the way for a recovery, the institute finds.

However, the first glimmerings of recovery will not emerge until this winter, with GDP set to keep falling through the third quarter.

The depth of the recession is set to take a big toll on the Government's finances, the report adds.

The Chancellor will be forced to borrow £128billion in 2009-10, £10billion more than his £118billion projection, and up to £140billion in the 2010-11 financial year.

It says that after excluding the cost of financial sector rescues such as Northern Rock, national debt will be 70 per cent of GDP by 2012-13, against the Treasury's 57 per cent forecast and almost double the 36.5 per cent for 2007.

— The Bank of England has lent £185 billion to Britain’s banks under its special liquidity scheme, it has revealed. The scheme, under which banks and building societies were allowed to swap illiquid assets for UK Treasury Bills, closed last Friday. It was launched last April. Describing use of the scheme as having been “considerable”, the Bank said that 32 banks and building societies had accessed the scheme — more than four fifths of those able to do so. The Bank said that they had swapped assets worth some £287 billion for UK Treasury Bills, but said that its valuation of these securities, as of last Friday, was only £242 billion.

    Britain 'headed' for deepest slump in 60 years, Ts, 4.2.2009, http://business.timesonline.co.uk/tol/business/economics/article5654764.ece

Q&A:

How much does Britain actually owe?

Sunday 25 January 2009
The Observer
Heather Stewart
This article was first published on guardian.co.uk at 00.01 GMT on Sunday 25 January 2009.
It appeared in the Observer on Sunday 25 January 2009 on p27 of the Focus section.
It was last updated at 00.14 GMT on Sunday 25 January 2009.

Official figures from last week showed that the government had run up total debts of £697.5bn, or 47.5% of GDP, by the end of 2008. That includes just over £100bn for the nationalisation of Northern Rock and the recapitalisation of Royal Bank of Scotland.

How does that compare with other countries?

Ranked by our debt-to-GDP ratio, we came 18th of 28 members of the Organisation of Economic Co-operation and Development in 2007, clocking in at 30.4% on the OECD's measure. A number of other major economies had higher levels of borrowing: Japan's debt was worth 85.9% of its GDP, for example, and Italy's well over 100%. Debt levels in many countries are likely to explode in the years ahead, too, as governments spend billions of dollars on recapitalising their financial sectors, and boosting public spending to kick-start the economy.
 

Is the debt mountain about to get much bigger?

Yes: the Office for National Statistics has said that the liabilities of RBS, thought to be around £1.7tn, will soon have to appear on the government's balance sheet, because its shareholding, of almost 70%, gives it enough managerial control over the battered bank to make it a public institution. However, the minutiae of the statisticians' rules mean that although RBS's liabilities will turn up on the books, many of its assets - such as the homes on which mortgages are secured - will not. So the eye-watering debt figures we are likely to see over the next year are a bit misleading. Even without the banking rescues, though, public debt has already hit 40.4% of GDP, bursting through the 40% limit the prime minister laid down as one of his fiscal rules when Labour came to power. And as recession eats away at tax revenues, and the government spends billions of pounds on Keynesian fiscal stimulus, the chancellor's forecasts show debt peaking at more than £1tn, or 57.4% of GDP by 2012-13.
 

What about Alistair Darling's latest bank rescue package?

The government announced last Monday that it would introduce a taxpayer-backed insurance scheme, allowing the banks to cap their losses on so-called "toxic" assets, if the loans go sour. That could potentially expose the public to vast losses and the unknown size of the black hole helped to send sterling into a tailspin last week. But the Treasury insists that many of the loans will eventually come good - and the banks are paying the government a fee for its trouble.

Is Britain at risk of "going bankrupt"?

It is highly unlikely. The government currently borrows about 35% of its total debts from foreign investors and there is as yet little evidence of them heading for the door: the German and Greek governments have had more problems borrowing money in the capital markets in the past few weeks than the UK. However, if foreign investors do go off gilts, then yields will be driven up - so, in effect, taxpayers will end up paying higher interest rates to borrow money.

Much of the cash the government needs can continue to be borrowed from taxpayers at home - pension funds such as government bonds, or gilts, because they can match the fixed returns against their liabilities, and cash is pouring into National Savings, which are invested in gilts as nervous savers shun risky looking banks. If overseas investors lose confidence in the UK, we will have to fund the debts ourselves, in effect, borrowing from our own future income. That could prolong the downturn and force the Bank of England to keep interest rates lower, and for longer, than it otherwise might have done, to compensate for the tightening of fiscal policy, but it doesn't mean we are "bust".

Will we have to "call in the IMF", as David Cameron claimed last week?

Again, it's not impossible, but highly unlikely: it would only happen if the government was unable either to meet a debt repayment, or to roll over, or "refinance" the debt with investors, in the capital markets. Ireland, Turkey and Greece all look much closer to that extreme than the UK. The verdict of credit ratings agency Moody's last week was that increasing borrowing in the short-term, in order to limit the length and severity of the recession, is a "calculated risk," which it doesn't think endangers the UK's creditworthiness. Spain and Greece have had their ratings downgraded, however, and Ireland has been warned that it could face the same fate.

If the problem in the first place was too much borrowing, isn't it dangerous to try to fix it by borrowing even more?

Yes, but the government believes the risk of allowing the credit markets to seize up, potentially driving the economy into full-blown depression, is even greater. As Mervyn King, governor of the Bank of England, put it last week: "This is the paradox of policy at present - almost any policy measure that is desirable now appears diametrically opposite to the direction in which we need to go in the long term."

    Q&A: How much does Britain actually owe?, O, 25.1.2009, http://www.guardian.co.uk/business/2009/jan/25/uk-recession

Official:

£40,000 loss for every taxpayer

Latest City figures reveal that the plummeting stock market
and plunging house prices have wiped out £1.2 trillion
of Britain's national wealth

Sunday 25 January 2009
Heather Stewart and Gaby Hinsliff
The Observer
This article was first published on guardian.co.uk
at 00.01 GMT on Sunday 25 January 2009.
It appeared in the Observer on Sunday 25 January 2009
on p4 of the News section.
It was last updated at 02.34 GMT on Sunday 25 January 2009.

Every taxpayer in the country has lost almost £40,000 since the onset of the credit crunch, as plunging house prices and the savage sell-off in stock markets have obliterated £1.2 trillion of Britain's national wealth.

The combined impact of the property downturn and the slide in share prices has wiped out the equivalent of a full year's economic output, according to research by analyst Dharval Joshi at City bank RAB Capital, £38,700 for every one of Britain's 31 million taxpayers.

"We're only halfway through; there's more destruction to come before we stabilise," said Joshi, predicting that as much as £2 trillion could be knocked off the value of assets.

Even by the end of 2008, just six months into what many analysts believe will be a prolonged recession, he calculates that £700bn has been lost in the housing market since the downturn began, plus £500bn from Britons' pension pots and share portfolios.

With public anger at senior bankers, regulators and politicians growing as the scale of the damage becomes clear, Gordon Brown will use a speech tomorrow to demand tighter international regulation of banks. He will argue that the crisis was exacerbated because no regulators, no ministers and startlingly few banking executives knew what assets had been sold to whom.

The prime minister will try to build a consensus around curbs on irresponsible banking practices later this week at the World Economic Forum in Davos, the annual gathering of tycoons and politicians. The Commons Treasury select committee will also seek to hold the industry to account over short-selling bank shares when it cross-examines five leading hedge fund managers
on Tuesday.

The Conservatives seized on Joshi's research yesterday to accuse the government of failing to protect consumers. Philip Hammond, shadow chief secretary, said: "Gordon Brown said he'd ended boom and bust, but he's presided over the biggest asset bubble in living memory and now we are all paying the price. Confidence in Brown's economic management has evaporated at home and the relentless decline of the pound shows that the rest of the world thinks the same."

Sterling declined sharply on the foreign exchanges last week, amid fears that the government's insurance scheme to protect banks against losses on 'toxic' assets - details of which are still being finalised this weekend - could expose the taxpayer to billions of pounds of additional liabilities.

Official figures revealed on Friday that the economy contracted by 1.5% in the final three months of 2008, underlining the severity of the downturn. Lord Myners, the City minister, said the economy was undergoing a "correction". "We know that there were elements of a bubble, not just in credit markets and share prices, but also in things like art and jewellery. There's a correction back towards an equilibrium. That's why we're taking the action that we are to support those who are most exposed."

But Liberal Democrat treasury spokesman Vince Cable said the government should have warned the public earlier that the housing market in particular was in the grip of an out-of-control boom. "They failed in their responsibility by failing to recognise the seriousness of the problem. We were rushing towards the edge of the cliff."

Rapid declines in wealth alarm economists, because consumers tend to respond by cutting spending, exacerbating recession. Danny Gabay of City consultancy Fathom said consumers had previously boosted their spending power by borrowing against their houses, but by the last quarter of 2008 mortgage borrowers were actually paying down equity, with a potentially devastating impact on spending.

"If you bought your house for £100,000 and some bloke in a pinstripe suit tells you it's worth £200,000, then you feel like you're being conservative if you only borrow an extra £25,000," said Gabay, who is concerned that the knock-on impact of the housing crash on families' spending habits has only just begun.

Joshi said Britain's housing boom and resulting bust meant the economy was likely to take longer to recover than America's, where consumers have more of their savings tied up in shares, which tend to see recovery faster.

    Official: £40,000 loss for every taxpayer, O, 25.1.2009, http://www.guardian.co.uk/business/2009/jan/25/credit-crunch-recession

The Guardian        p. 31        22 January 2009

http://digital.guardian.co.uk/guardian/2009/01/22/pdfs/gdn_090122_ber_31_21731567.pdf

The Guardian        p. 18        22 January 2009

http://digital.guardian.co.uk/guardian/2009/01/22/pdfs/gdn_090122_ber_18_21731547.pdf

Inflation fails

to match hopes of steeper fall

January 20, 2009
From Times Online
Grainne Gilmore

Inflation fell by 3.1 per cent in December, its biggest fall since 1992, but failed to match hopes of a steeper 2.7 per cent fall.

Consumer Price Index (CPI) inflation from 4.1 per cent in November to 3.1 per cent last month, which is the lowest rate since April 2008 but still above the Bank of England's 2 per cent target.

However, the drop was less pronounced than City economists had forecast. Howard Archer, chief UK and European economist at IHS Global Insight said: "...the decline was significantly less than expected given the VAT cut, lower oil prices and apparent intensified discounting on the high street in the run-up to Christmas.

"This suggests that not all of the VAT cut was passed on, and it is also likely that sterling's weakness had some upward impact."

Sales by clothes shops helped drive down inflation - clothes prices in December were more than 10 per cent lower than in December 2007, compared to a 7.3 per cent fall in November. Falling petrol prices also helped ease the pressure on consumers wallets.

The cost of a litre of petrol fell by 6 pence between November and December, compared with a rise of 1.7 pence last year.

RPI inflation, which includes housing costs, dropped more sharply to 0.9 per cent in December from 3 per cent in November as the swingeing interest rate cuts by the Bank of England were passed on to homeowners.

The Bank of England has forecast that CPI inflation will fall to below its target of 2 per cent this year, and could even drop to as low as 1 per cent. City economists expect that RPI inflation will soon fall into negative territory.

    Inflation fails to match hopes of steeper fall, Ts, 20.1.2009, http://business.timesonline.co.uk/tol/business/economics/article5551705.ece

Credit crunch part two

Government ready to step in

as banks take another hammering

Monday 19 January 2009
The Guardian
This article was first published on guardian.co.uk
at 00.01 GMT on Monday 19 January 2009.
It appeared in the Guardian
on Monday 19 January 2009 on p7 of the UK news section.
It was last updated
at 09.11 GMT on Monday 19 January 2009.

What is wrong with the banks?

It's all about confidence and the deterioration of the real economy. Before Christmas there was a consensus that the UK's national income would shrink by around 1% this year. Now economists are talking about 2% to 3%. A worse slump than expected means many more unemployed and thousands more homes repossessed. For the banks, that spells more pain as people default on their mortgages and turn good loans into bad ones.

Will our savings be safe, or are we another meltdown?

Last November the government faced the collapse of Royal Bank of Scotland and HBOS, the owner of Halifax. While the banks may need some more capital, and therefore come under even greater ownership by the taxpayer than they are now, the government is ready and willing to step in before things reach a new crisis point. Investments, whether in stocks and shares, property or in more esoteric assets like commodities, are another matter. They are all on the way down. World trade has slumped along with the US, European and UK economies and there is little likelihood of things picking up this side of 2010.

Is it the credit crunch part two?

The steep rise in bad debt is expected to trigger at least £40bn of bad-debt write-offs when the UK's main banks report their annual results next month. The collective figure could be as high as £200bn for all the losses on loans and investments. Banks argue they cannot get lending under way without putting a floor under their bad debt provisions. In other words, their finances are so battered by last year's credit crunch that they cannot help passing on the effects of the second wave credit crisis to consumers and businesses without further support from the government.

What are the plans to solve the crisis?

Top of the list is an insurance scheme that would effectively underwrite the loans of banks in trouble. A scheme could, for instance, leave the banks to pick up the tab for further falls of up to 10% in the value of assets they hold, leaving the taxpayer to reimburse them for the rest. The government is also considering pumping more capital into the banks to replace the money lost from a mass exodus of investors in the last week. Ministers could decide to forego the estimated £1bn a year the banks must repay on the money lent to them by the taxpayer. If the insurance scheme fails, we could become the proud owners of what will probably be called the "Bank of Reconstruction and Recovery", formerly referred to as a Bad Bank, that will take all the nasty, toxic loans off the banks' books.
 

Is a Bad Bank likely?

Not at the moment. Most people in the banking industry argue it would take months to determine which loans fit the bill and how much the government should pay the banks for them.

Why is Barclays taking such a hammering?

Hubris is the word that comes to mind for many observers. Barclays refuses to accept government money and is betting that its investment banking division will generate such huge profits they dwarf any losses on home loans. Rather than take government funds, it preferred to tap foreign investors who wanted a higher interest rate. Investors don't like this idea and they don't like investment banking any more, because it played a big part in the downfall of the international banking system.

    Government ready to step in as banks take another hammering, G, 19.1.2009, http://www.guardian.co.uk/business/2009/jan/19/credit-crunch-banks-government

RBS shares dive 70%

on mounting debt fears

January 19, 2009
From Times Online
Dearbail Jordan, Tom Bawden and Martin Waller

Q&A: what's in the bailout?

Shares in Royal Bank of Scotland (RBS) plunged by 70 per cent today to a new low amid fears the Government will fully nationalise the struggling lender, which expects to report a £28 billion loss for the year and admitted that more could be on the way.

RBS' loss, which will be confirmed on February 26 when it announces it full-year results, emerged as the Government revealed a second package of measures designed to encourage banks to start lending money again to ease the credit crunch.

As part of the measures, RBS revealed that the Government will increase its current 58 per cent stake in the bank to 70 per cent. Last October, the Government injected £20 billion into RBS as part of the Treasury's first banking bailout attempt.

Both Gordon Brown, the Prime Minister, and Alistair Darling, the Chancellor, refused this morning to comment on whether RBS will be fully nationalised, joining Northern Rock, which became state-owned last year.

However, speculation is mounting that RBS will be taken into state-ownership and the bank spooked investors today after it admitted that it may announce even more losses on top of the £28 billion loss.

It will be the biggest loss in UK corporate history, more than double the current record set by Vodafone, the telecoms giant that reported a £15 billion deficit in 2006.

Shares in RBS plunged 70.6 per cent, or 10.2p to 10.2p today. The bank's shares are now worth 98.3 per cent less than their peak of 607p in February 2007

Stephen Hester, chief executive at RBS, who took over from Sir Fred Goodwin last year, said: "The world remains an uncertain place. We can all be sure there will be future significant credit losses but we can’t be sure of what amount and what timing?all banks are facing uncertainties.”

RBS blamed £20 billion of its losses on last year's acquisition of ABN Amro, the Dutch bank.

Today, the Prime Minister lambasted RBS for its irresponsible behaviour, admitting he was "angry" with the bank.

Mr Brown said this morning that Britons had a right to be furious at "irresponsible" behaviour which saw RBS spend billions last year acquiring ABN Amro, the Dutch bank which had exposure to US sub-prime mortgages, as well as investing directly in the American home loan market.

“Yes, I’m angry about what happened at the Royal Bank of Scotland," he said.

The bank's expansion strategy was led by Sir Fred. Sir Tom McKillop, the chairman at RBS who worked closely with Sir Fred, is being replaced Sir Philip Hampton, the chairman at J Sainsbury, who joins the bank today but will take over the role in April when Sir Tom retires.

Mr Brown added: "Now we know that so much was lost in sub-prime loans in the US and now we know that some of that was related to the purchase of ABN Amro, I think people have a right to be angry that these write-offs are happening and that these write-offs were caused by decisions that were made about international investments that were clearly wrong investments.”

Commenting on the need for a second bailout of British banks, Mr Darling said: “There is no doubt that because the economic downturn has been much sharper, especially over the last few weeks, that has exacerbated the situation.”

While the Government will increase its stake in RBS, Lloyds TSB, which from today will be known as the Lloyds Banking Group after officially taking over HBOS, is reportedly fighting against increase state-ownership.

As part of last year's first attempt at stabilising the UK banking sector, Lloyds TSB and HBOS, owner of Halifax and Bank of Scotland, took £17 billion in funding from the Government in exchange for a 43 per cent state in the combined bank.

Mr Darling said: “I have said that in the longer term, I don’t believe that governments ought to be running banks. Provided that they are properly supervised and regulated, provided their boards take proper decisions on who they lend to and they lend responsibly.”

Mr Brown and Mr Darling appeared at a joint press conference in order to deflect criticism over introducing a second bailout of the banking sector just three months after a first attempt.

The Prime Minister denied that the Government was writing a “blank cheque” for the banks, and there would be “legally binding” commitments in return for state support.

Banks will be encouraged to lend again under new measures announced by the Government.

The latest deal with the banks will require the taxpayer to pour billions of pounds into the troubled companies in the form of guarantees for new lending and the purchase of a range of loans and other assets now on their books, in addition to the £37 billion funding pledged in October.

The actual eventual cost is at this stage impossible to quantify, but some experts have warned that the resulting huge rise in Government borrowings could put intolerable pressure on the public finances.

Details of the package this morning include the extension of the £250 billion credit guarantee scheme announced with the last group of measures in October until the end of this year.

There is also a new facility to guarantee loans and mortgages issued by the banks to encourage them to lend again, while there is a new scheme replacing the existing arrangements, which end this month, providing banks with access to Government bonds in return for other assets.

The Bank of England will set up a special fund to buy high quality loans and other assets direct from the banks, to be funded by the Treasury, with an initial £50 billion set aside.

The Treasury said that the package was designed to reinforce the stability of the financial system and increase confidence and the banks' capacity to lend.

A statement said that over the past two months, since the last raft of measures to help the banks and the November pre-Budget report, "the global financial and economic situation has continued to deteriorate".

The Treasury and the banks have been in negotiations over the weekend after it became apparent that the October package was not enough to rebuild confidence in the financial system and persuade the banks to open their coffers again.

Mr Darling said that the measures were needed because if the banking system collapsed, the economy "would come down with it".

But he also said regulation of the banking sector would be reviewed, stating that "in the world we’re living in just now we do need to look again at the way we supervise and regulate these banks”.

There have been worrying signs that even successful and profitable companies have been refused access to much-needed credit, while the rash of collapses and bankruptcies of companies such as Woolworths have caused concern over existing debt.

Northern Rock confirmed that it was slackening off its attempt to reduce its mortgage book and would as a result be repaying loans to the Government at a slower rate.

It would mean that more of its customers would be able to keep their mortgages with the bank.

RBS also said that it will increase lending by £6 billion after announcing plans to convert £5 billion of preference shares to ordinary shares to increase the Government's 58 per cent stake to 70 per cent.

    RBS shares dive 70% on mounting debt fears, Ts, 19.1.2009, http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5546850.ece

Brown accuses RBS

of taking ‘irresponsible risks’

Published: January 19 2009 08:34
Last updated: January 19 2009 14:08
The Financial Times
By Alex Barker, Maggie Urry and Peter Thal Larsen


Gordon Brown on Monday unveiled a second bank rescue package including powers for the Bank of England to lend up to £50bn directly to businesses, as he accused the Royal Bank of Scotland of taking ”irresponsible risks” as the bank’s shares collapsed.

His comments came as RBS on Monday warned it could report an annual loss of up to £28bn, following the mis-timed acquisition of ABN Amro, the Dutch lender it acquired as part of a €71bn (£63bn) hostile break-up bid in 2007.

”Almost all their losses are in subprime mortgages in America and related to the acquisition of ABN Amro. These are irresponsible risks taken by the bank with people’s money in the UK,” Mr Brown said, adding that the decision to buy ABN ”was wrong”.

The outburst from Mr Brown came as the Treasury agreed to replace the £5bn in RBS preference shares held by the government since the October bailout with ordinary stock. This will increase government ownership to almost 70 per cent.

Shares in RBS fell 20.1p or nearly 60 per cent to 14.6p, valuing the bank’s capital at less than £6bn, as investors feared the bank may be fully nationalised.

Stephen Hester, chief executive of RBS, said that full nationalisation was something that was discussed over the weekend with the government but it was ”something we all wished to avoid.”

The government’s decision to increase its RBS holding was part of a second bailout package designed to shore up Britain’s struggling lenders.

In an effort to bring down borrowing costs, a new £50bn fund will be established to allow the Bank to extend loans to some of Britain’s biggest companies. Alistair Darling, chancellor, said the Bank would take ”security and assets” that would be sold on ”once the economy starts to improve”.

Denying that he was ”writing a blank cheque” for the banks, Mr Brown said the steps were necessary to revive lending in the economy and compensate for retrenchment of the world’s banking system.

The establishment of the Bank’s corporate lending fund will have a neutral effect on money supply. But it provides the framework for the Bank of England to implement a policy of ”quantitative easing” or effectively pumping money into the economy should it decide there is a need to do so.

Sterling, however, fell against leading currencies including the yen, dollar and euro in reaction to the government’s latest measure to shore up the UK’s financial system. UK government bond prices also fell forcing gilts sharply higher.

Lee Hardman at Bank of Tokyo-Mitsubishi UFJ said: “The government is putting the framework in place for the Bank of England to move towards quantitative easing, which would tend to be negative for sterling, because it would increase the supply of currency in the market. The market is anticipating that and sterling has fallen accordingly.”

The reaction in equity markets was broadly positive with the FTSE rising nearly 2 per cent in morning trading after suffering heavy falls last week.

The scheme, which will be detailed more fully by the end of February, will allow banks to buy government protection for eligible assets by paying a fee, which will be agreed case by case. The fee is most likely to be paid through the issue of preference shares to the government, but the Treasury said it would consider taking cash.

The banks will remain responsible for a “first loss” amount, similar to an excess in a normal insurance claim, and will also remain liable for about 10 per cent of the residual loss. The government insisted on this clause to make sure the banks had an incentive “to endeavour to keep losses to a minimum.”

The assets can be denominated in any currency. Those most likely to participate in the scheme are portfolios of commercial and residential property loans; structured credit assets, including certain asset-backed securities; and other corporate and leveraged loans. The scheme is expected to continue for at least five years.

Similar schemes are expected to be set up in other countries, and the government said it would hold discussions with its international partners to co-ordinate them. Details of a similar scheme being considered by the US government are expected to emerge in the coming days, while other countries are expected to follow.

The new measures to stabilise the financial system and encourage banks to start lending again is unlikely to have an immediate cost to the taxpayer, economists said, but could cause the already severely stretched public finances to get even worse should further large losses materialise on assets guaranteed by the government.

The fresh efforts to help banks are ”exposing the public finances to more risk” than the original bailout package, according to Gemma Tetlow of the Institute for Fiscal Studies.

Among the other measures, the government said it would extend the credit guarantee scheme which had been due to expire in April to the end of the year. It announced a new guarantee scheme, to begin in April, for triple-A rated asset-backed securities, including mortgages and consumer debt.

It announced that Northern Rock would stop winding down its mortgage book and return to offering new loans in an attempt to bring new capacity into the mortgage lending market.

    Brown accuses RBS of taking ‘irresponsible risks’, FT, 19.1.2009, http://www.ft.com/cms/s/0/7de5d2f8-e601-11dd-8e4f-0000779fd2ac.html

Q&A: What the bail-out means for you

Published: January 19 2009 12:54
Last updated: January 19 2009 12:54
The Financial Times
By Lucy Warwick-Ching,
Sharlene Goff, Elaine Moore and Steve Lodge
 

The government on Monday launched its second bank rescue package, injecting billions of pounds more of the taxpayer’s money into saving Britain’s banks. What does this mean for savers, mortgage holders and investors?

What are the proposals?

* A ‘pay as you go’ insurance scheme, which will see an uncapped amount of ‘toxic’ bank debt underwritten by the public purse.

* A £100bn plan to kick-start mortgage lending.

* A £250bn credit guarantee scheme underwriting the risk of banks’ lending to each other, due to expire in April, extended to the end of this year at least.

* A project which allows banks to swap loans for government bonds extended.

* Last year’s bank bailout rules torn up so they have freedom to lend again.

Where does this leave shareholders?

Shares in RBS as well as Lloyds – which now owns HBOS - have crashed to new lows. RBS was down more more than 60 per cent by early afternoon at just 12p, while Lloyds had lost 30 per cent. Shares in RBS had already plummeted more than 90 per cent in the credit crisis.

The increase in the government’s stake in the bank to 70 per cent means that existing shareholders will own less of the bank. But stock brokers also fear RBS could be heading for nationalisation and many are advising investors to sell their shares now to get some value back.

“Equity holders will be eliminated,” warned Paul Kavanagh, partner at Killik & Co.

Graham Spooner, investment adviser at The Share Centre, said: “No doubt some shareholders will be tempted to hang onto their shares in the hope that things will pick up. However, RBS could be just one step away from nationalisation. As such we are advising shareholders to consider selling in order to recoup some of their losses”.

What about Lloyds shareholders?

Lloyds has not accepted a similar offer from the government to convert high-cost preference shares for ordinary equity. This means shareholders are undiluted for now, albeit that the bank is still saddled with a 12 per cent interest rate on these “prefs”.

How will the bail-out help mortgage borrowers?

The main problem for borrowers has been the lack of available finance. Banks have not been able to access funds, so have been limited in the amount of new lending they can provide to customers. They have only had the appetite to lend to the least risky borrowers so have restricted their best rates to those with the most equity or biggest deposits.

The steps taken by the government to offer guarantees on loans should improve confidence, mean that banks can access new funds more easily and make those funds available for borrowers. The government has also made banks promise to increase the amount of lending they are doing.

Will the measures work?

It will depend on how easily, and at what price, the banks can obtain protection from the government.

Government guarantees should help to revive investor interest in asset-backed securities, so banks will again be able to sell on their debt.

The Royal Institution of Chartered Surveyors (Rics) said that if this strategy was successful, it would offer lenders the opportunity to use wholesale funds to help supplement savers’ deposits as a source of finance for new mortgage loans.

“This is an important first step in putting in place the conditions for a return to an orderly housing market,” said Rics.

The government also announced that Northern Rock will have longer to repay its loans, which could free up more finance for new borrowing.
 

So will new mortgage rates get cheaper?

Lenders have already been reducing mortgage rates for new borrowers with large deposits. If banks have renewed confidence about lending then they could start to pass on rate cuts to more borrowers.

However, brokers said that as the government guarantees looked only to apply to the highest rated debt, riskier borrowers may not see any real benefit.

Any increase in liquidity should entice more lenders back into the market, and trigger some competitive new rates.

How does easing lending restrictions at Northern Rock help?

Northern Rock has been encouraging borrowers to move to other lenders in a effort to repay its £26.9bn government loan. However, now the Government wants it to slow down the rate of redemptions and lend more to individuals and businesses. The bank’s original redemption plan had put a drain on strained mortgage finance market as orphaned Northern Rock borrowers looked for new lenders.

An increased presence by Northern Rock could also lead to some attractive new deals being launched. It also means it will be able to increase lending at a time when other lenders have cut the amount of business they are doing.

What will it mean for savings’ rates?

Savers could find the number of accounts offering attractive rates of interest cut if the second bank bail out is a success.

Although banks have mirrored the Bank of England’s interest rate cuts by reducing interest payable on savings products, competition for retail deposits has spurred providers to continue to offer a small number of relatively high paying accounts in order to attract new customers.

Savers can still earn 4.65 per cent in a 12 month bond from ICICI. Advisers say that if liquidity in the money markets improves banks may be less inclined to pay out interest rates 3 per cent higher than the base rate.

Will savings be safer following the deal?

While any scheme which strengthens the UK banking system is beneficial for customers, advisers say savers should already be feeling confident about the security of their money.

The first £50,000 held by a customer in a bank or building society is already protected by the Financial Services Compensation Scheme, including that held in Indian owned ICICI.

Could there be buying opportunities in equities?

The banks are at record lows but the markets rallied on Monday. Joshua Raymond, Market Strategist at City Index, said: ”The markets have recovered some of the losses of last week after the government announced the second banking bail-out in 3 months. Mining and oil stocks are particularly strong this morning with both sectors rising over 3 per cent.

Raymond, added: “What the bail-out and recent results most certainly do are re-affirm the fact that the banks will be living on a cliff edge for some time to come. It takes guts to invest in banks right now when you are faced with the prospect of rising bad debts, further bail-outs and increasing prospects of nationalisation just around the corner.”

    Q&A: What the bail-out means for you, FT, 19.12009, http://www.ft.com/cms/s/2/3d05b66e-e61e-11dd-8e4f-0000779fd2ac.html

Barclays shares in new collapse

as bank crisis enters second phase

Friday 16 January 2009
20.34 GMT
Guardian.co.uk
Phillip Inman and Jill Treanor
This article was first published on guardian.co.uk
at 20.34 GMT on Friday 16 January 2009.
It was last updated
at 20.40 GMT on Friday 16 January 2009.

Shares in Barclays and Royal Bank of ­Scotland plummeted as huge losses at two of America's biggest ­financial institutions sparked fresh fears for the future of Britain's banking industry.

In a frantic hour of trading, Barclays lost almost a quarter of its value - marking the second wave of a banking crisis that has already dragged the industry to the edge of collapse. The dramatic fall, which also shook the newly merged Lloyds TSB and HBOS, forced banking chiefs to cancel a planned summit in the City and ­triggered a flurry of emergency meetings in Whitehall.

Alistair Darling, the chancellor, met Adair Turner, the chairman of the FSA, the main financial regulator, while Gordon Brown met Mervyn King, the governor of the Bank of England, to assess the ­damage after a week of devastating news for the banking industry.

Barclays denied it faced financial problems and rushed out a statement to the New York stock exchange before trading closed. The bank, which is due to report its figures next month, said profits before tax for 2008 after all charges and costs should be well above forecasts of £5.3bn. The bank's tier one capital ratio should be 6.5% at the end of the year and the total capital ratio will be 9.1%, putting it in line with many of its peers.

Analysts said Barclays had suffered a severe loss of confidence following speculation that it faces further losses on hundreds of billions of pounds worth of toxic ­investments. Concerns that the main City regulator had added to the bank's woes by lifting a ban on short-selling was dismissed by the government, but were leaped on by opposition MPs as an indication of government incompetence. Some City traders said the dive in Barclays shares had been fuelled by rumours of the bank's imminent nationalisation spread by short- sellers who profit from falling prices.

Vince Cable, the Liberal Democrat treasury spokesman, said it was ­"absolutely extraordinary" that the ban had been lifted. "Another wave of speculative pressure is the very last thing that is needed," he said. But Barclays shares have been falling all week, along with those of the other major banks, as investors come to terms with further bailouts by the US government and a raft of gloomy predictions for the UK economy.

Citigroup, Bank of America and Merrill Lynch revealed losses over three months of $25bn (£17bn) between them yesterday.Citigroup sought extra funds from the US treasury and is being forced to break itself up as the price of its rescue. Bank of America, which bought the largest mortgage lender in the US last year at the height of the sub-prime crisis, also announced large write-downs on its assets, mainly ­sub-prime home loans. The US government has promised $800bn of extra funds after the Senate released the second tranche of a $750bn bailout yesterday.

The scale of the support for the US banking system has shocked even the hardened operators in the City and triggered soul-searching among investors, many of whom have seen the value of their ­holdings sink by 90% since a peak in early 2007. Many investors expect the banks' 2008 results next month will involve multi-million pound write-downs in a wide range of assets caused by the credit crunch. Auditors have already told the government they are reluctant to sign off the accounts of banks and many other companies because of funding worries. Analysts at RBS predicted banks would be unprofitable until 2011.

The Treasury has become aware in recent days of a general loss of confidence in the banks' capacity to escape from with credit crunch. Last night it indicated that plans to bolster the industry would be brought forward, possibly to early next week. A range of options to kick-start lending, including a scheme ring fence $200bn in toxic assets, will be discussed with the big banks at a meeting on Sunday.

    Barclays shares in new collapse as bank crisis enters second phase, G, 16.1.2009, http://www.guardian.co.uk/business/2009/jan/16/barclays-bank-shares-in-new-collapse

UK jobless toll surges

as Barclays cuts 4,200

January 14, 2009
From Times Online
Peter Stiff and Catherine Boyle

Britain’s unemployment numbers surged higher today after Barclays, the UK bank, doubled its number of job cuts to 4,200 and Jaguar Land Rover, the embattled carmaker, eliminated 450 workers.

It emerged yesterday that Barclays was planning to reduce staff numbers by 2,100 across its investment banking division, adding to the 400 IT staff cut by the bank last week.

However, the bank surprised investors today by sheddng a further 2,100 jobs from its retail and commercial businesses.

Earlier, Jaguar Land Rover said that it would eliminate 450 staff, including 300 managers, as well as delay bonuses and pay rises as demand for its high-end vehicles waned.

The cuts follow days of increasing redundancies as UK businesses struggle to cope with the economic downturn.

The developments will put more pressure on the Government to act quickly to help companies and out-of-work Britons.

Unemployment is 1.86 million and economists expect the number to hit three million by next year.

Labour announced plans on Monday to invest £500 million in getting the long-term unemployed back to work through a series of measures.

Today Lord Mandelson unveiled a £20 billion scheme to help small businesses to secure funding from banks, which are still proving reluctant to lend to companies.

This week Merrill Lynch and Bank of America said that 1,900 of its workers would lose their jobs when the two banks merge, with the axe expected to fall in London as well as in the United States.

JCB, the machinery group, said yesterday that it would shed nearly 700 staff. Also Wincanton, the logistics business, will cut 1,000 employees, and Waterford Wedgwood, the Irish maker of fine china and glassware, which went bust last week, has reduced its UK headcount by 367.

Nearly 1,500 jobs are also at risk after Land of Leather and Newcastle Productions, the Findus Food maker, which employs 420 people, went into administration.

Commenting on the headcount reduction, news of which sent its shares down 10 per cent to 150p, Barclays said: “Barclays continually reviews its operations and resources so that they function efficiently as business needs and customer requirements evolve. In the current market conditions, this is particularly important.”

It is understood that the jobs cuts at the business division, which includes Barclaycard and high street branches, will be in the UK and will be mostly made up of contract and temporary staff as well as positions that are vacant.

The bank hopes to inform all workers who are affected by the end of the week.

Jaguar Land Rover said that it had started consultations with employee representatives on its proposed redundancy programme.

It said: “Clearly, these choices are very difficult. No company wants to lose skilled and experienced employees in any condition.

"Throughout the process we will ensure employees are treated with dignity."

Sales of Land Rovers in particular have been hit by the credit crunch, and the company acknowledged today that it did not expect demand to pick up for some time.

David Smith, the chief executive of Jaguar Land Rover, said: “It is only right and proper that our response to the unavoidable impact of the credit crunch and a severe reduction in demand includes actions across all grades and functions in the company."

Tata, which bought Jaguar Land Rover from Ford last year for $2.3 billion (£1.5 billion), has asked the UK Government to provide financial support similar to the funding deal secured by its American rivals.

However, the UK Government has yet to provide aid to the British car industry.

Jaguar Land Rovers cuts are the latest to hit the embattled sector in the UK, after Nissan, the Japanese car giant, announced last week that it would shed 1,200 employees in Sunderland.

UK jobless toll surges as Barclays cuts 4,200, Ts, 14.1.2009, http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article5516540.ece

3,200 UK jobs axed

as Brown unveils £500m rescue

January 12, 2009
From Times Online
Catherine Boyle

A fresh wave of redundancies hit the British economy today after a series of companies revealed plans to cut more than 3,200 jobs as Gordon Brown announced an emergency £500 million proposal to help the long-term unemployed back into work.

JCB, the machinery giant, said this afternoon that it was cutting nearly 700 jobs because of the lack of credit available from banks and continuing low confidence in the construction industry.

The construction machinery manufacturer said that its customers could not get enough credit, and Government-funded construction projects were not moving forward quickly enough.

Hours earlier, Land of Leather, the furniture retailer, collapsed and put 800 jobs at risk as it fought to find a buyer while Waterford Wedgwood, the fine china and glass maker, said it would axe 367 staff from its 1,900-strong UK operations. Last week, Waterford Wedgwood went bust under £415 million of debt.

It also emerged today that Wincanton, the logistics company, will make 1,000 of its staff redundant at Manchester and Gloucester through a merger with Culina while the company that makes Findus's frozen foods in the UK collapsed, putting 420 jobs at risk.

There are currently 1.86 million people out of work in the UK and economists expect unemployment to hit 3 million by 2010.

This morning, Gordon Brown announced plans to offer companies “golden hellos” worth up to £2,500 when they take on someone who has been out of work for longer than six months.

In an effort to stimulate the economy, 75,000 training places will be created for the long-term unemployed and there will be funding for jobless people to set up businesses.

Land of Leather, which had 106 stores, is the latest furniture retailer to have gone bust following a steep downturn in customer spending.

Shares in Land of Leather, which had slumped to 2.75p, were suspended this morning over uncertainty about its financial position.

Last year MFI, ScS, Rosebys and The Pier collapsed after the downturn in the housing market meant that fewer people were moving house and, therefore, buying fewer "big ticket" items, such as sofas.

Since then, consumers have become more cautious because of the rising rate of unemployment in the UK. The downturn has hit retailers across the sector including Woolworths, the 99-year old chain, Zavvi, the CD and DVD group, Whittard of Chelsea and The Officers Club.

The housing downturn has also hit Cushman & Wakefield, the property consultants, which said it was preparing to make up to 80 people redundant across its UK business, which employs around 700 people, during the next two months. The company has been hit by the decline in the commercial property market.

    3,200 UK jobs axed as Brown unveils £500m rescue, Ts, 12.1.2009, http://business.timesonline.co.uk/tol/business/economics/article5503108.ece

Last Woolworths Stores

Turn Out Lights in Britain

January 6, 2009
Filed at 11:11 a.m. ET
The New York Times
By THE ASSOCIATED PRESS

LONDON (AP) -- Bankrupt department store chain Woolworths, a stalwart of British retailing for 100 years, turned out the lights at the final 200 of its 807 shops on Tuesday.

Debt-laden Woolworths filed for bankruptcy protection in November. Administrator Deloitte held a huge liquidation sale -- even selling off fixtures and fittings -- and announced last month it would close all Woolworths stores after attempts to find a buyer for the faltering chain failed. About 27,000 jobs are being lost.

The stores had been due to close by Monday, but Deloitte allowed an extra day so stores could sell their remaining stock.

The first British Woolworths store opened in Liverpool, northern England, in 1909 under the FW Woolworths brand -- a subsidiary of the U.S. company. The British retail company has outlasted its original U.S. parent, which closed its final Woolworths stores in 1997.

Woolworths, which sold everything from candy and children's toys to household appliances and DVDs, has struggled for years to remain relevant as supermarket chains expanded aggressively into its traditional business.

But it remains a sentimental favorite with many Britons.

''It's a family thing,'' said John Kerr, 51, shopping for last-minute bargains at a Woolworths in Brixton, south London. ''Yes, you can buy the same things in other stores but there isn't anywhere where you can buy anything from videos to toys to sweets all under one roof. It covers all generations.''

Deloitte has held talks with other retailers to take on the leases of around 300 Woolworths stores and hopes to sell off the firm's Ladybird children's clothes and Chad Valley toys brands.

The company is not related to Sydney, Australia-based Woolworths Ltd. or South Africa's Woolworths Holdings Ltd.

Last Woolworths Stores Turn Out Lights in Britain, NYT, 1.6.2008, http://www.nytimes.com/aponline/2009/01/06/business/AP-EU-Britain-Woolworths.html